State legislators were warned in 2000 by then-Gov. Ben Cayetano about the dire consequences of resolving contract talks with state and county employees through binding arbitration. Negotiations with state employee unions are headed in that direction, but legislators should resist raising taxes to accommodate predictably generous wage packages approved by out-of-state arbitrators.

Cayetano told legislators in his State of the State speech that the binding arbitration law enacted four years earlier was “;seriously flawed”; because arbitrators had given “;too much discretion to make decisions that have no relationship to the state's true fiscal condition.”; The Legislature responded by repealing the law but reinstated it in 2003 under union pressure after Gov. Linda Lingle took office.

In 2005, Lingle said state revenues had grown by about $1 billion over the previous decade. However, she added, state employee wage increases totaled $873 million while the state health premiums and contributions to the retirement fund put the total over $1 billion, eating up more than any extra money for the needy, schools, harbors, airports, environment and other programs.

State government was able to struggle at that level during relative prosperity but faces serious damage during the current recession. The governor has proposed that state employees accept furloughs—staying off from work, without pay, for three days a month—over the next two years to achieve a constitutionally-required balanced budget. The Hawaii Government Employees Association, the lead union in contract talks, has countered with a once-a-month furlough.

The state's ability to pay wages approved by an arbitrator “;shall not be predicated on the premise that the employer (the state) may increase or impose new taxes, fees or charges, or develop other sources of revenues,”; according to the Hawaii law.

However, in past years, the arbitrator has split down the middle from what the state has offered and what the union wants. The unions have recognized that formula by proposing wage hikes beyond what they could reasonably expect. Thus, a two-days-a-month furlough is likely.

The arbitrators belong to the New York-based American Arbitration Association, which includes no Hawaii member. Thus, the arbitrator is “;insulated from the consequences of his award,”; says labor attorney Michael Nauyokas, a Honolulu arbitrator and mediator. “;Whatever he gives, he jumps back in his plane, flies to the mainland and never hears about it again. The rest of us have got to live here and deal with it.”;

As a result, the Legislature is likely to be faced with raising taxes to pay for the arbitrator's decision or allowing Lingle to lay off employees to balance the budget. Legislators have themselves to blame for placing themselves in such predicament.